Q2 2023 Cumulus Media Inc Earnings Call
Speaker 1: equivalent to approximately 22% of the total shares outstanding at year end 2021. In parallel we were able to complete the discounted debt buybacks retiring 32.3 million face value of debt for 23.8 million of cash.
Since announcing this capital allocation strategy in Q2 of last year and combined with our last excess cash flow sweep of 12.5 million, we have retired $125 million in face value of debt.
Before I turn the call over to Frank, who will give you more color on the quarter and our current Q3 pacing, I wanted to close by reiterating a couple of points.
Pre-pandemic, our management team successfully executed an operational turnaround while right-sizing an inherited overextended balance sheet through restructuring. And since the pandemic, this team has driven best among peers performance on cost takeout, EBITDA margin recovery, free cash flow conversion, and more.
net leverage reduction, and cash generation. And in this particular cycle, we are intently focused on positioning the company to take advantage of the eventual recovery of high margin national advertising, investing in our digital marketing services business to develop a market leading position in that space, reducing fixed costs to further enhance operating leverage.
and generating substantial long-term value, shareholder value from opportunistic deployment of capital. And with that, I'll turn it over to you, Frank.
Thank you, Mary. Second quarter revenue was down 11% in line with the pacing commentary that we gave in our last earnings call, while EBITDA came in at approximately $31 million.
The weakness in the national advertising environment remained the main factor driving the decline in total revenue.
On a relative basis, our businesses generating revenue from local advertisers continue to perform those dependent on national advertisers.
Regarding EBITDA, our results benefit from continued cost reductions.
From a category perspective, telecom and consumer packaged goods were our top performing national categories while our weakest were professional services and retail.
General Services and Auto were top performing major local spot categories while financial, sports betting and travel were some of our weakest.
Our local digital businesses consisting of digital marketing services, local streaming, and local podcasting were up in the mid-teens. Turning to expenses, total expenses in the core decreased by approximately 12 million year over year, driven by fixed cost reductions as well as by lower variable costs and lower revenue.
from an acquisition related earn out. Additionally, we recorded a $9.1 million non-cash impairment charge related to real estate, which is reflected as a year over year variance within the corporate expense line. As always, we will continue to be aggressive in pursuing cost reductions to mitigate the top line impacts in the current environment.
Moving to the balance sheet, we generated approximately 12 million of cash from operations this quarter. In addition, we announced a highly accretive asset sale for $10 million, which will have a de minimis impact on EBITDA, and which we expect to close shortly.
We remain opportunistic on non-core asset sales.
Our consistently strong cash reserves have allowed us to support the continued execution of our capital return and debt reduction strategy.
During the quarter, we would purchase $5.7 million of shares, bringing our total share purchases to date to $39 million.
At this point, we have repurchased approximately 22% of the shares that were outstanding when we initiated the buyback program. Additionally, we retired approximately 32 million face value bonds at an average price of 74, bringing total debt reduction since the beginning of the year to $39 million and 125 million since the beginning of last year.
This reduction in debt has largely offset the approximately 500 basis point increase in short term rates increase since last year.
As a reminder, we have reduced net debt by over $420 million or 42% since 2019.
Looking ahead, we continue to see weakness in the national advertising market. As a reminder, we are facing a difficult political comp in the second half, as last year we generated $4.5 million and $8.3 million of political revenue in the third and fourth quarters respectively. As a result, on a total company basis, we are currently pacing down in the low double digits for the third quarter.
and opportunistically deploying capital. With that, we can now open the line for questions.
With that, we can now open the line for questions. Operator
Absolutely.
If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question.
We will pause here briefly as questions are registered. The first question comes from the line of Dan Day with New Raleigh Securities. You may proceed.
So just looking at your experience over the last couple of quarters, really over the last year with national advertising, especially on the Westwood One network, clearly where a lot of the challenges are concentrated right now. I think a big reason for that is the relatively short-term nature of campaign commitments, how easily.
they can sort of be dialed up and down. Just wondering if you think it makes sense as we get to a point of recovery to try and lock in campaigns longer term, maybe more of like an upfront process you see on the TV side, or do you think that would just be a non starter with advertiser and liability clients?
Hi, Dan, thanks for the question. We do have an upfront process for the network. It's a little bit of a soft process, but generally locks in maybe two-thirds of the business. But unlike TV, there's an out clause within a month of when the product runs. And what we're seeing is advertisers are
either pulling out at the last minute or are sitting on the sidelines and waiting to advertise later. So we give everything we've got to get people to commit upfront. But I think we're seeing the fact that it's...
Networking particularly is well positioned. It's the biggest audio network in the country, top reach vehicle, great brand building vehicle. And we don't see...
We don't see any reason that it doesn't bounce back eventually, but we are seeing that
We are seeing that everyone else like us, everyone's keeping an eye on the interest rates and inflation and banking issues and recession talk. As that dies down, we think it will get better.
A follow up on retail being relatively soft in the quarter, I think that's in contrast to what a lot of the digital advertising players have seen in terms of retail being fairly strong so far. Just you maybe, retail media being sort of one of the hotter digital media, you know.
Maybe just talk through why you don't think that's sort of a permanent shift over from kind of linear to digital and why you think those retailers will come back to the linear radio and television longer term. Hi Dan, it's Frank. I'll take that question.
As Mary discussed, there are a lot of factors impacting the national advertising market.
And I think one of the things that we're definitely seeing is that as interest rates go up
We're seeing companies, particularly larger companies, trying to protect their EPS performance and they're allocating their dollars very judiciously in certain areas.
So from our perspective when we think not only about retail but broader national advertising, thinking about the reach that we have broadly to our local businesses as well as our network business, it's really a question of time for that money to come back from the discussions we're having with our clients broadly.
We're not hearing anything about a permanent reallocation of advertising dollars to other medium. It's clearly a competitive market. We are taking advantage of some of that for digital businesses as well. But as far as we can tell right now, it's really a timing issue as opposed to a permanent reallocation of dollars.
For me, just you sold two stations this year for a decent number.
Look, we are very judicious in our portfolio and we take a point of view that if there are assets that make sense in our portfolio, we will pursue them from an acquisition perspective. Although as you know, we've been more into the best year mode as opposed to an acquisition mode. Although we have a balance sheet right now.
that we can look at acquisitions when it makes sense.
These transactions are one-off transactions. We have over 400 stations. We have lots of stations in many clusters and there are one-off opportunities where it makes sense to sell them. And we will do that. And these two stations generate a gross value of $17 million. And the EBITDA that we are losing from that is really de minimis. So in terms of
the accretion as we talk about in our earnings call is really significant. If there are more of those we would actually obviously take advantage of the opportunity and use that to continue to reduce debt and potentially buy back equity.
Any questions? Okay. Questions. Show them the video.
Thanks, Dan. Thanks, Dan.
Thank you.
The next question comes from the line of Ivy Steiner with J.P. Morgan. Your line is now open. Ha ha.
Thank you and good morning. A few questions here. One, if I could start on the pacing, please. Thank you.
down low double digits. I want to clarify does that factor in the political headwind you mentioned or does that hit later in the quarter and kind of not in the pacing numbers?
And what I really want to try and get into is if we strip out political, is political getting better at all sequentially? And I've got a couple more minutes.
Well, at the last year, most of our political dollars kicked in after our earnings call. So it's not really including our pacing.
But if you look at last year's results.
The political dollars we had last year contributed just approximately 200 basis points in terms of revenue. So that will come in later in the quarter.
With regard to local, we talked about in our last call that our local spot business, which is Excluding National within our spot business, was down 7% with the green shoots that Mary talked about in the auto category.
we would expect the third quarter hopefully to be better than what we saw in the second quarter. Now that's obviously dependent on the other categories, but the growth that we had with Otto, which is a big category for us and was a very big category back in 2019, is helping drive that performance.
But to be clear within the local spot business, it's still down versus last year, but that's gonna help us a closer gap a little bit.
Okay, thank you. And then on the cost side, performance this quarter was...
2 million one.
I heard that correctly. But anything else in that line and I guess what's driving the year over year decline and is that how we should think about it for the back half of the year?
but anything else in that line and I guess what's driving the year-over-year decline and is that how we should think about it for the back half of the year?
Yes, I mean, we did want to highlight the one-time benefit such that it's not modeled on forward. So now we created a sound into the video.
and the cost savings.
is something that's clearly very real and it's hard to achieve and every quarter we're asked the question is there more and every quarter we say well it continues to look at our cost base. I think the incremental improvement on costs or reduction in costs.
by definition will probably be smaller as we have a smaller cost base.
But having said that, the areas that we continue to focus on are re-engineering the business, technical efficiencies, people efficiency, their opportunities to consolidate markets where it makes sense to do so, business process improvements, and these are things which are currently in our DNA from a continuous basis.
And so we're pleased with this increment of $5 million. So $15 million in fixed cost annualized reduction is a big number compared to what we've already done. We'll continue to do that. I would expect that the incremental reductions compare now probably be more modest.
But having said that, we've said that before, we can need to find costs.
That's something we'll always do and I'll remind everyone the operating leverage that we've created in business is significant by reducing cost by over a hundred, fixed cost by over 105 million.
with a rebound of high margin national and of course next year political, then we're set up well for significantly better EVA down improvement as the market recovers.
Okay, that's a great thank you. And then just on the Detroit station that you sold, can we assume that's all going to derripe and if I can add on to that, I guess.
I see why any equity at allthat will. That will. I'm sorry, but ES I cut you off. We were delayed.
My question was just confirming that proceeds, albeit small, but 10 million still could be
My question was just confirming that proceeds, albeit small, but $10 million still could see, will that go to debt repayment and then...
Well, as you know, we did take advantage of the opportunity in the second quarter on debt reduction and we did a significant amount while still preserving a lot of cash on the balance sheet.
With regard to those proceeds, they'll go on the balance sheet of cash.
and we can use that for investments, debt reductions, or equity repurchases.
And as we've said in previous quarters, we really don't talk about our plans ahead of time and we'll be able to report on the third quarter in terms of our capital allocation plans. Having said that, and I'll reiterate and I mentioned this on the earnings call, on the call that on my script, is that by having reduced the number of people that are in the
gross debt by $125 million since being in the last year. Not only is that great from a leverage perspective, but as we manage our cash flow, it's immunized a lot of the increase in short-term rates and to the extent we continue to focus on that, that will accrue the benefits to all stakeholders. And then if and when the Fed starts...
which some people think will be next year, and then it will turbocharge the capital generation from the debt reduction strategies we've implemented.
I appreciate that answer and I don't think it's lost on anybody that you've...
There's obviously pushback on, you know, financial refinance, and I think we have time for that, but ended on this question. Curious as to your thoughts on the financial situation and the financial situation.
Where do you want to be to give yourself the maximum flexibility?
We made a strategic decision to change our financial leverage targets last year.
to achieve the level of below three and a half times.
Previously, that number that we had mentioned was to get to below four times. As you know, there are competitors in our industry that have much higher leverage numbers.
and have higher leverage targets and be sensitive.
indicated recently. Our leverage will go up by virtue of Ibadah being challenges here.
and will trend down nicely next year with the recovery, although we're not giving guidance.
As we, this is an industry I believe and we believe.
that with
some of the challenges that we've had from the top line. It should have less financial leverage in the business. So the first step that we made, and we recognized that was to get down to three and a half times leverage. And as you know, we were very close to that at the end of last year.
And as we continue to reduce that, we'll revisit to the board what that right leverage number should be going forward.
I can't give you what the number is, but I wouldn't be surprised if it's not three and a half it could be lower than that, but...
Stay tuned on that. We have a lot of which to chop to get the recovery and reduce the debt. But again, you mentioned about the debt refinancing. Our net debt is less than $600 million. It's half the debt that we had coming out of restructuring. The markets are not great right now, but in terms of the quantum debt that we have to refinance when the market improves, we know the leverage.
improve them in that leverage perspective, I think will be a good position to take advantage of that.
Appreciate the time. Thank you so much.
Thank you.
The next question comes from the line of Michael Kopinski with Noble Capital Markets. Your line is now open.
Thank you for taking the questions. I appreciate that. I'm trying to understand the cost cutting that the company has done.
You know that I was just wondering has the company reduced its footprint in the markets Decreased local talent move to toward more central programming and if you've done that I think what's this done in smaller markets versus some of your larger markets. I'm just trying to understand that nature because obviously as Ivy said
you cut costs much more than what I've expected as well. Yeah, that's a great question. We have looked at cost cutting across multiple paths. So, we have looked at cost cutting across multiple paths.
The last several years, the first thing we look for is efficiency. So we've consolidated both our traffic and our business manager functions at reduced cost and it enhanced efficiency and outcomes actually. We are looking at, it's really right now real estate.
contract costs. We focus a lot on contrast. Some, you know, consolidation of staffing, but not much of that. We have not done consolidation of programming because we believe that the local, live and local, is key to our strategy.
You know, we've improved our programming for sure, but that's not an area of focus. So our fixed costs...
We have a very, very disciplined process as to how we get at it. But I would characterize it really in three buckets, which is contracts, general contracts, real estate, and then efficiency, looking for areas of efficiency.
which is why we always think we are at the end of it, and then we dig in again, and we're very, very aggressive about it.
If I can jump in here, Michael, I can give you a couple of additional points.
We do have a slimmer workforce than we did three years ago. And so when you look at
Probably 40% of that has to do with similar workforce and it's not, and we emphasize this a lot, it's reducing costs without impacting revenues with more efficiencies. And we look at large markets, small markets, we look at the network. We're trying to find out when cock
to reduce the fixed cost base. And the key thing that we focus on...
is impacting, when we look at costs, is to really avoid impacting revenue.
and there's an industry that continuously has to be re-engineered.
And that's why we keep on talking about the operating leverage.
Gotcha, thank you for that. The disparities in revenue, are there disparities between larger markets versus smaller markets or the performance pretty evenly across the markets?
I'll take that.
Okay, sorry, Mary. So the smaller markets in general are performing better than the larger markets. The smaller markets, the dairy markets have less exposure to national than the PPM markets.
So, that's the trend that we're seeing now.
Thank you. I'd add on the small market, it's also the area of the most successful digital marketing service product because...
In smaller markets there are fewer competitors. So our relationships tend to go further. So that's one advantage with smaller markets.
And just the final question, in terms of the network business, can you talk a little bit about the tone of the business? There obviously was some sequential improvement in the quarter. And I was wondering if the tone of the business has improved in the third quarter, it's simply that the comps are just getting easier.
I would say that the tone of the business really hasn't improved. The comps are getting a little bit easier.
just a broad weakness in the national markets.
are challenging. Having said that, in the previous, in the last quarter we talked about our podcasting business.
And a lot of those advertising dollars are national in nature.
So although the pacing in the third quarter is still down versus last year
There's a sequential improvement in that compared to the second quarter, but overall.
I wouldn't say that there's a trend, an all-clear trend yet on the national markets.
Blake, would you describe it as stabilizing or would you say that it still hasn't stabilized yet? A little bit, actually.
I would describe it as uncertain.
The fourth quarter will be really interesting as we get to the end of the year because generally a lot of advertisers.
we'll start clearing out their budgets for the rest of the year and start planning for next year.
And I think the fourth quarter will be the time for us to really give that answer. A lot of our business is still coming in within the quarter.
And so we'll talk more about that on our next earnings call.
Thank you. That's all I have. Thank you.
Thank you.
Thank you.
The final question comes from the line of Jim Gough with Berenson Research. You may proceed. You may proceed.
Okay, thank you. Along the line of the question we've already had, you've done great success in retiring debt, reducing number of shares, meaningful cost reductions. It seems like you've done all of the things that you can manage during your control.
a big part of what you need now as an improvement in the industry or are there things under your under your further control that can enable you to
big part of what you need now of an improvement in the Industry or are there things under your under your further control that? can enable you to you know perhaps your
participate in a stronger way either. I know you talked about live and local being very important to me.
hone in a little more on just how that's working overall and by market size.
or the mix between
radio ad demand and the podcasting which are sort of complementary products how are you looking at the environment and is it is it something are there things that you need to that are just out of your control and you need to benefit from some improvement that we is a little indeterminate or there's
Are there things that are more in your control than I'm seeing?
Yeah, that's something we think about a lot. We are very, very disciplined about identifying and focusing on what we can control to mitigate what we can't. And so specifically, we focus on, as you've heard, reducing our costs. A second bucket would be innovative, trying to be more innovative and creative.
ideas and employing them across the company. So we really doubled down on those areas, especially the growth areas. You heard us talk about digital marketing services. So hardly any review by the company at all,
During these kinds of markets we are laser focused and extremely disciplined on what we can control. And that's why you've seen a big push on areas like digital marketing services. And then there are to mitigate the negative impacts of what we can't control which is the market right now.
But, you know, again, as we said multiple times, we're confident that our operating leverage will know to our benefit with the upswing. There will be an upswing. So I think, you know, we're pretty good at this. We're pretty focused. And we're pretty confident that when things pop back with our operating leverage, we're going to be a nice benefit on the upswing.
The other thing I wanted to ask about is what you just brought up, digital marketing services. I know you said you plan to lean into it more. I think you said you were going to triple your sales force in that area by the end of the third quarter.
I know one of your smaller competitors has had significant success in it, I know you're aware. You deal in somewhat bigger client levels based on the market sizes you reach into.
I assume it's a little more competitive in the types of markets you're looking into or maybe not. And just how far do you plan to go in that that would change the character of the company a little bit by getting into something that's...
a little more tangential and not exactly the same.
Type of business, it's a core business.
Yeah, we see, you know, we have been very, very successful in training our radio native sellers to sell both radio and digital products to both current customers and new ones. And generally their approach so far, and we do this across the company.
There is more competition in larger markets, but there is a whole lot of opportunity across the country. And generally, their approach has been to upsell radio with digital, so they go to their long-standing relationships and they upsell radio with digital. And as we mentioned, that business is already run rating at $40 million. So what we did was we tested –
adding additional digital native sellers, so not radio sellers, who focus only on digital, generally non-radio clients. And we've seen that in our early tests a really nice payoff. And that gives us enough confidence that we are adding more direct sellers. We believe that if we add more direct sellers we are going to see more direct sellers.
our monthly digital run rate, those numbers add up really quickly as we work to become meaningful players in the market. So I would kind of wrap this up by saying there is a lot of opportunity. We operate generally in the mid and small sized markets and there is a lot of opportunity and we're seeing it.
So we're very, very bullish on that. Okay, thank you very much. Appreciate it.
very bullish on this. Okay, thank you very much. Appreciate it. Thank you.
Thank you. I would now like to pass the conference back over to the company for closing remarks.
Thanks very much everyone and we look forward to talking with you again next quarter. Have a nice weekend.
That concludes today's conference call. Thank you for your participation. You may now disconnect your line.